Good day, and welcome to the Q3 twenty sixteen Stor Enzo Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ula Payena, Head of Investor Relations. Please go ahead.
Okay. Thank you. Good afternoon, everybody. It's Ula here. And why don't we start?
I will hand over now to Karl. So please go ahead, Karl.
Good morning, good afternoon, depending on where you are in the world. And I would like to go through a presentation together with Sapo and then open up for Q and As. So another quarter of solid performance. Sales reached almost €2,400,000,000 in the 2016. Importantly here is that we are continually to grow, and we grew by 1.8 percentage points, excluding structural decline in paper and divested Barcelona mill.
The ramp up by Warkaus and Beihai is continuing, and it's going well. We are reporting an operational EBIT of $219,000,000. And included in that is an additional loss of SEK 35,000,000 due to the Beihai ramp up. Cash flow of SEK $390,000,000. Year to date, we are SEK 70,000,000 ahead of last year in generating cash flow, and we are reporting a return on capital employed of slightly more than 10%.
And excluding Beihai, we are at 13.5%. We managed in this quarter actually to reduce the net debt to EBITDA down from 2.5x last year to 2.1x. And I think this is a very important part of our delevering story. If you take the next slide. So if you have a look on the operations, so we had last year a 246% or 9.8% EBIT margin in this quarter because of the additional costs of ramping up Beihai or SEK 35,000,000.
We actually are having a minus SEK 13,000,000 for the Consumer Board. Packaging Solutions, basically due to the better and the breakeven performance of Warkaus, improved by 3%. You have biomaterials being affected slightly by lower volumes, but basically by lower hardwood pulp prices. You have a stable wood products and you have a huge improvement in paper. And then you're having slightly less than last year in other.
And that is basically because in this quarter and next quarter, we will have a lot of less land sales compared to the year ago period. That ended us up at 9.2%. However, if you put back to understand the underlying profit generation of Storansu, you put back the SEK 35 and deduct the SEK 7 for the paper asset disposal that was done in quarter. We ended up actually with an underlying EBIT margin of 10.4%. We have now stabilized for the fifth quarter in a row a return on capital employed above 10%.
And for the fourth quarter in a row or in a short period, we are actually above 13% if you exclude Beihai. The delevering of Storrenso continues. And we've been well over 3% in 2013, and we have continuously worked on working capital. And due to the improved profitability, been able to reduce the net debt to EBITDA where we are today at 2.1x versus 2.5x a year ago. The transformation steps since 2015 is a long list, everything from the newly inaugurated sawmill in Murrow, the biorefinery, the Beihai board mill that we started up in May, the Vilja demonstration plants, the Aala Sawmill boiler and pellets investments and now the recently announced restructuring of the corrugated business in The Nordics has happened since 2015.
We have done a number of divestments and closures announcements since then. And the latest one is actually the closure of the box plant in Hainola. So the transformation. Beihai board mill is ramping up ahead of plan. So prime quality reached.
We are running customer tests with liquid boards, and they are proceeding extremely well. And the first CKB board test runs are completed. We expect full production in eighteen to twenty four months from the start up in late May twenty sixteen. The BCTMP plant is planned to be operational before the end of this year, and that will give a 220,000 tonnes capacity of BCTMP. And the chemical pulp, the 130,000 of hardwood we sourced from Veracel and 90,000 tonnes of wood from the market.
The PE coating investment is expected to be completed in mid-twenty seventeen. Warkau's kraftliner ramp up is proceeding. We reached as expected breakeven in Q3. Full production is expected during the 2017. We will have maintenance in Q3 in Q4 this year, and we will do some additional CapEx investments during Q1 where we need to take the mill down.
The new production line for wooden building components, LVL, is ramping up, and we are right into the certification process. Full production expected in mid-twenty eighteen. Before I hand over to Sepul, I just want to make sure that the transformation continues, and this is a slide that I've been using for the last couple of quarters or more than that. So from going from having less than onethree of growth business, we are now over twothree of growth business when it comes to sales. And actually, when it comes to being just below 40% of the profit, we are now over threefour of the profit coming from the growth business.
So with that one, I hand over to Seppo.
Thank you, Karl. And I start with some key figures. First of all, sales. Reported sales was down 4%, 4.3%. But worth to note is, as Karl already mentioned that there is good underlying growth in our business excluding divestments and declining paper business.
And that was going up 1.8 in Q3 year on year. Operational EBITDA margin was 13.6%, slightly down compared to year ago and operational EBIT margin was 9.2%. Earnings per share excluding items affecting comparability was up €04 and was €0.17 in total. Operational return on capital employed excluding Beihai project was 13.5%. So it was above our strategic target of 13% and also up compared to year ago when it was 13.1%.
And net debt to last twelve months of our EBITDA was 2.1 percent, clearly down from 2.5% a year ago. Then I move to our divisions and start with Consumer Board, where sales growth was 3.2% excluding the divested Parsevonor mill that we divested earlier. Operational EBIT increased €20,000,000 or 23.3 percent excluding the Beihai operations and that was thanks to increased efficiency and improved product mix. Operational return on capital was 12.9% and very good achievement excluding PeiHai mill we reached 42.3% return on capital. And you have to remember PeiHai mill as it is in the startup phase, it is creating some operational losses to us.
And EBIT loss in PeiHy was €42,000,000 in Q3 and we expect about €33,000,000 in Q4. We have also announced a new investment at Imatra Mill and we are investing €14,000,000 there to renew and modernize Moloroz gas processing. And we also launched a new product CKP Nude that is uncoated carton board designed to meet the consumer preferences with natural look and feel. Then moving to Packaging Solutions, where sales were 15% up driven by Warkal's kraftliner mill and also higher volumes from our Polish containerboard mill in Ostraleka. Operational EBIT was €3,000,000 up and import result of Warkaus mill was partly offset by the challenges we are having still at Storoz impact in China.
We also reached important milestone in Warkaus, Warkaus kraftliner mill. The ramp up is proceeding and we had first positive EBITDA quarter in Q3. We also announced plans to consolidate corrugated packaging production in Timaktolahti plant and negotiations locally are going on as we talk. Then moving to biomaterials, where sales decreased due to lower hardwood pulp selling prices and slightly lower volumes and that was mainly due to maintenance. And the reason is that Veracel had annual maintenance now this year during Q3, while a year ago it was the quarter before meaning Q2 twenty fifteen.
That also had some effect on the EBIT for the quarter and also meant that deliveries were slightly lower. And the main driver for the EBIT development was significantly lower hardwood pulp prices. Also good news is that customer trials for Linglin are proceeding well at the Sunilam mill and we are also going ahead with R and D ramp up during the coming quarter. Then Wood Products, where sales increased that was mainly due to higher volumes from Murozov in Poland and also Warkau's LVL plant is ramping up since the start in June earlier this year. Operational EBIT was stable, positively affected by lower log costs and higher sales volumes, but negatively by higher fixed costs and lower income from sawdust and wood chips.
LVL, Wooden Building Components plant ramp up is going ahead as planned and we are moving ahead at the moment with the certifications. And operational return on capital continued stable at 17.5, only a little bit short of our target of 18%. Then moving to Paper. The operational EBITDA improved 75% year on year for the quarter. Stable prices and stable volumes the declining market and important to note is that actually sales remained flat excluding the structural changes.
Like said EBITDA increased from 75% that is thanks to tight cost management and good production efficiencies in Paper division, low variable cost especially in Energy, Wood, Chemicals and Pulp and lower fixed costs. And like Karl was referring to also earlier, there was about 7,000,000 positive included for asset disposals in the result. Cash flow generation continued at an excellent level, I dare to say. Cash flow after investing activities to sales was record high at 11.7% and clearly above the long term target of 7% that we have set for the division. Divestment of Kapel Mill in Germany was completed and Schuylkill Mill divestment is proceeding according to the plan as announced earlier.
We also continue our internal project in paper as we have announced earlier that we are reviewing how to create the best conditions for the Paper division to compete under the increasing cost pressures and declining market demand. Then to summarize the strategic targets. And as you can see, we have quite many green ticks there already. So first of all on the growth, we are growing to 1.8% now, a bit less than a year ago, but thanks to ramp ups that are in the pipeline at the moment Beihai Waterhouse we are confident that the positive trend will continue there also. Balance sheet has strengthened as commented earlier.
Net debt to EBITDA below the targeted level and debt to equity as well at 52%. And operational return on capital excluding pay high of 13.5% including pay high 10.1%. This goes to sales at 25.5%, so still above our targeted 20% level, but we are still confident that in the longer run we will be able to reach the targeted 20% level. If you look at the divisions, Consumer Board where the target is 20%, they were at 12.9% in Q3 this year, including Beihai and excluding Beihai at the excellent level of 42.3. Packaging Solutions at 9.6%, still suffering from the effects of Beihai excuse me, warehouse startup and impact in China.
Biomaterials 6.7 result affected by the latest trends with pulp prices and Wood Products at 17.5%. And they have been at or around 18% target level already for some time and stable performance continues. And stable, I said earlier at 11.7% cash flow after investing activities where the target is to be above 7%, so clearly above that. And also a year ago we were at 9.2% above the targeted 7% level. Then over to you, Paolo, on guidance.
Yes. Thank you, Sefo.
And the guidance for the fourth quarter twenty sixteen is compared to the 2016. Sales are estimated to be slightly higher or slightly lower than the amount of €2.393 recorded in the 2016. Operational EBIT is expected to be in line with or somewhat lower than the €290,000,000 recorded in the 2016. These estimates include a positive impact of the scheduled annual maintenance shutdowns of approximately €35,000,000 compared to the 2016. It is important to remember that in Q4, we'll have a normal seasonal slowdown for Consumer Board, which will affect profitability negative as usual.
Transformation into a customer focused renewable materials company, progressing well. The Beihai Consumer Board is ramping up ahead of plan. Customer test on liquid, board ongoing. Test run for Sikhi board completed. Warkau's cross line and mill reach EBITDA breakeven.
A center of excellence for corrugated packaging in Lakti under consideration. Wooden Building, Australia's first wooden office building from Stora Enso CLT is being constructed as we speak. We inaugurated the Murrow sawmill in Poland during the quarter, and we launched the KB Nude. With that, I hand over to Ulla.
Thank you, Karl. So we are now ready for the Q and A session. So please give instructions.
You. We will now take our first Kepler Cheuvreux. Your line is open. Please go ahead.
Yes. Hello. Good afternoon,
I have a couple of questions. I mean, as we can see, your balance sheet is strengthening. And as you point out, your net debt to EBITDA is running at 2.1x. And this cash flow is very strong. So really, have sort of two questions around this.
What is, in your opinion, sort of an optimal balance sheet going forward? And secondly, should we sort of somehow link this good cash flow and debt reduction into our thinking around the dividend. And of course, we all know that it's the Board that decides upon that. So that would be my first question. And then second question, on the paper, the projects that you launched and you're saying that it is running on plan, could you just give us some more color and flavor around that project on computing better in the paper division?
Thank you.
So first of all, I think having a net debt to EBITDA that starts with a one would be probably be very good for us. And as you say, it is a increased cash generation, which we have been able to do both because we have continuously taken out working capital as well as we are having lower investment this year than we have the year before. And we have given this that over a longer period, we want to take the investments, the CapEx down towards somewhere around the depreciation rate plus SEK 100,000,000 for the biological assets that you need to replant on the plantations. So obviously, this is something that the Board are looking into, and that's a discussion that starts basically now. So I think I answered that question there without answering it really because we can't do it.
But I feel very positive about our cash generation capabilities. When it comes to best in class paper, I think the performance today is basically our ability to run basically if you take away the sold or the closed assets, we've been running stable volumes and stable prices. And to be able to keep this up, we are working on this best in class paper and probably helped a little bit this quarter, but it's actually all about how we make our paper business more competitive in a challenging market and is progressing well.
Okay. Thank you.
We will now take our next question from Lars Kjellberg from Credit Suisse. Your line is open. Please go ahead.
Thank you. Just want to start with BI. Are you producing any commercially viable products today? Or is that still something to come? And how do you see your sort of production mix developing in 2017?
And if you can provide any color how do you see the progression of earnings? So obviously, you said you had what EUR42 million EBIT loss and then EUR33 million. Is that the pace we should expect over the next sort of two, three quarters a continuation of gradual improvement at that pace? Final question, well, question, I guess, on Consumer Board. There are some challenges in Europe in terms of weak ish demand and significant capacity additions, well known, of course.
But how do you see this business going forward in Europe in terms of demand trends and the amount of supply that is available now from European side? So first of all,
we have been selling some qualities, but it's basically second grade folded boxboard in China. And that's part of the reason why we it's part of the growth in Consumer Board. The more important is the qualifications that we are undergoing with the big customers when it comes to liquid packaging. And they are going well, better than expected. And then we are also, as I said, had done the completed the tests with very positive results on CKD.
And then we are also doing some specialized noodle boards for noodles. And so in the medium term, we will start with some better folding boxboards, then we will work with other grades like cigarettes and also some cupboards, but towards the Chinese market. And the end game of this mill is to run it basically on foodservice board, CKB and liquid packaging. And that will we will get some volumes of liquid already next year, but that's towards the end of the year. And then the other areas is a little bit more around how fast we can ramp it up and get customer qualification on some of the more advanced boards.
And this is I'm sorry that I can't give you a longer plan, but the mill has been running four months, and we have already done quite a bit when it comes to the qualification. So I'm very proud of the team, and they are ahead of the time line. And I know this is complicated. And we know that from history, and we know that from some of the challenges our competitors has been having. When it comes to if your question was about Consumer Board in Europe.
Yes. Yes. And I think that we see a slow growth in Europe, depending on where in Europe you are. Central Europe is probably one to two percentage points or 1%. And then more on the Eastern side, we see slightly higher.
And then we see strong growth in China and in Southeast Asia. And over time, we will deliver the over 100,000 tons that we are selling into the Chinese markets right now into new markets. And that will probably be Middle East. It will be certain parts of Europe, and that's all we are working on. I think the demand for liquid is quite healthy, but it's stronger in Asia.
That's why we are building Beihai.
In terms of starting up the BC and T plant, should we expect any cost associated with that? And where do you see the benefits for those operations as you ramp that up?
So I think when it comes to the BCCMP, that is included in the SEK33 million that we are giving as an EBIT impact for the Q4. And obviously, it will need some qualifications because it's we are now buying external CPMP pulp. So that will be in one of the loops going ahead on certain grades.
Understood. Final question for me. Given the significant price spread between European kraftliner today and U. S, would you consider to try to move some volumes from Varkaus into The U. S.
Market?
So we a lot of the volumes of the Varkaus, we are already deploying in Latin America and very close to The U. S. In North Part of Latin America. I think we have had some looks on The U. S.
Market, but we have been picking Latin America. We're picking Middle East, and we've been picking Southeast Asia.
Can you give us any quantum about how much you are exporting from Airgas versus domestic in Europe just to get some barriers?
I don't have that in my head, but it's significant amount. Yes. Okay. Thank you.
We will now take our next question from Hari Takyon from Nordea. Your line is open. Please go ahead.
Thank you. It's Harvatay for the Nordea. Good afternoon. A lot of the questions I had in mind have been answered already, but maybe one on the variable costs and the sort of the deflation cycle we have seen over the last couple of years. I mean, you seeing any impact of variable costs starting to move up with the sort of oil prices, recycled fiber prices as sort of those costs or the unit prices seem to have been increasing over the past months?
And how much of that impact have you seen? And will there be sort of more of that in the coming quarters?
Well, Zeppey, effect has been very limited of the high energy prices. You have to remember that, of course, when it comes to electricity prices, we are hedged pretty much and we have our shareholding in PVO where we get it at cost anyway. And when it comes to logistics and others, there has been some positive effecting from energy also from the wood and other places. So I would say that the cost pressures have remained quite small or nonexistent. And we don't feel any immediate pressures either at the moment going forward.
Okay, okay. Maybe just one more on the paper business sort of review. And by the sound of when you communicated it and looking at possibly building sort of separate HRIT structures, is there going to be sort of extra cost related to the separation, which then needs to be offset by the benefits you are seeing from the review? Or how do you look at the cost implications from that review?
It might be some initial extra cost, but they will, of course, be offset by a bigger saving in how we run it. So net net, it's going to be lower.
Yes. Makes sense. Okay.
Yes. Just want to be very clear about that.
Yes. Thank you very much.
We will
now take our next question from Justin Jordan. Your line is open. Please go ahead.
Thank you and good afternoon, everyone. Firstly, I just wanted to return to Packaging Solutions. In prior quarters, you've given us the actual tonnage volume produced from Varcross in Q1 and Q2. Can you provide the similar number for Q3? And secondly, staying within Packaging Solutions, you've talked in the past about expanding the Ostralenka mill in Poland with additional testliner production.
Given what's going on in terms of increased OCC prices across Europe, is that decision now on hold? Or can you give us some time line as to potentially a decision for that?
I'll ask the second the last question for you, and then I'll ask Seppo for help on the Vyaches. When it comes to the potential of the PM6 in AustroLenka, that pre study is underway. We are well aware of what you are mentioning. And once that study is ready, we will take a decision. So there's no change.
You give us some timeouts By for that
the end of the year as previously announced.
The end of the year. Okay, fine.
I'm still taking the Warkash volume. So if we continue, I'll come Yes. Back to that
Okay. And just on going back to Page 17 of your slide deck, where you talk about strategic targets across the various divisions. Given what's happened with pulp prices within biomaterials, have an operational return on capital target of 15%. Is that now unrealistic given current pulp prices? Or is there any operational improvements that you can bring to the store asset portfolio to make that achievable again?
If you look at the pulp prices today and the performance in the third quarter, you have to remember that Veracel was in maintenance in Q3, which is huge. So that's affecting. But to get to 15% with the present pulp prices, it's a bit of a stretch. We were around 15% last year when the pulp prices were in a different level. But obviously, we need to work on it.
But it's not done overnight. So the target of 15%, which is a longer term target, remains. And right now, we are suffering from especially low hardwood prices.
I think coming back to your question on varicose volumes. In Q3, it was 69,000 tonnes, which is 65,000 tonnes more than a year ago. And for comparison, Q1, it was 60,000, Q2 67,000 tonnes. So slightly progressing upwards as it should be.
Fantastic. Thank you. And just one final question. Just I appreciate you've been asked about this several times, but just on the Paper division review. Should we be expecting something with your November 17 Capital Markets Day?
Or is this something that you might share with us the review findings with the Q4 results? Or when should we reflect some conclusions from this?
So first of all, it's an ongoing process because we are working with it. And as I said, part of it is included in the quite strong performance versus a year ago. But this is going to take longer time because this is a project actually that we are designing and redesigning as we go because it's we really need to find a structure that supports a very competitive paper business. So don't expect too much from the Capital Markets Day, to be honest.
It's more like continuous improvement type of thing and projects running. In this regard, yes.
Okay. Thank you.
We will now take our next question from Tom Burlton from Bank of America. Your line is open. Please go ahead.
Hi there. Thanks for taking my questions. I had two questions, please. The first is on the Paper division and on prices specifically, where it looks like your realized prices were actually up year on year and the capacity of yours, as you mentioned, fine and publication prices have been down between 34% in the quarter. I was just wondering why and we've seen ForEx and list prices trend down.
I was wondering why there was that discrepancy and whether you think that perhaps the ForEx list price is not an accurate reflection of what your realized prices will be going forward? And also how pricing is shaping up for Q4, for example?
So if you can take the first part, I look on paper prices into the next quarter. I see them to be fairly stable. And then when I look upon the demand, it's probably going to be slightly weaker versus the same period a year ago. But it's also a period, which is a lot of things is undecided yet for the remaining months of this year. But I when it comes to the when we go through prices and demands in the paper, we can clearly see that it's been fairly stable and that you see in the result and so has the demand.
And we have been having a very good operational performance in the quarter.
Yes. Think it's just confirming what Karl said that fine paper prices, they are expected to be somewhat lower compared to Q3, especially in wood free uncoated. And publication paper grades expected that they are more stable compared to to be more stable compared to Q3. So quite no drama.
Okay. Okay. Thank you. And the other question was just relating to your guidance. If you could perhaps give a bit more sort of flesh around that exactly what you mean by in line to somewhat low?
I mean, what sort of corridor that implies? Is it sort of flat to minus 5% or minus 10%, plus 5%? And then just relating to that also, what should we use as the base for that? Is it the 02/19 EBIT? Because you pointed out, obviously, you had the €7,000,000 gain from asset disposals.
So should we be thinking about $212,000,000 as the base?
Yes. First of all, have to remember, if you look at the EBIT guidance that we are in the ramp up phase of Beihai Mill and also Warkaus is still ramping up. And that's why we want to be careful. And it's anchored to Q3 €290,000,000 EBIT level. Like always we guide based on the previous quarter.
And the range is from plus 10% to minus 25% based on our way to guide. So in line with or somewhat lower than Q3.
Okay. Perfect. It's very clear. Thank you.
We will now take our next question from Linus Larsson from SEB. Your line is open. Please go ahead.
Thank you and good day to everyone. Coming back to the Beihai project and in the past we've talked about potential Phase two involving a chemical pulp plant. Could you update us around your thought process around a potential pulp mill and at least against the backdrop of lower pulp prices
So we have no Board decision on it. And if I remember right, I said in Q1 of this year that we need to ramp up the Bayai first. So in general, it's basically two years out from end of when we publish quarter one until we actually will start to think about and preparing this for the Board, if we will prepare it.
Great. And then that's clear. And then on Warkaus and the ramp up of the kraftliner machine, it seems it's delayed. And you say that you expect full production in the 2017 rather than the 2017. Could you talk a bit about what is happening and what you are doing to improve the situation?
So first of all, we made, as we said, EBITDA breakeven in the third quarter. In the fourth quarter, we are having maintenance because now it's been up for a year. Then in the first quarter, we actually are having additional CapEx put in, in a small section, which means that we're going to take it down to actually be able to do improved products as well as slightly different products. That means that we will have it down. Unfortunately, because of the lead times, we could not combine that with the maintenance shutdown that you need to do after a year, which means that it is really running full in the 2017.
And what kind of products are you planning to make that you haven't been planning to make so far?
It has to be certain qualities that we need to fix. That's we need to upgrade some of the hardware.
All right. Thank you.
So we start running it full, but full in second half. So the ramp up starts in Q2 twenty seventeen. We
will now take our next question from Oscar Lindstrom from Danske Bank. A
couple of questions. If I just start off with packaging board market? And other than your own investment and the potential capacity addition of biller coarseness, have there been any other major significant changes to capacity in the global liquid packaging board market? Or do you know of any planned major changes?
Of the announcements that I'm aware of is this feasibility study that is ongoing in the unfortunate. That's the only one I'm aware of.
Right.
Thanks. So my second question is also on liquid packaging board. And how much capacity, if any, of liquid packaging board do you expect to or production rather, sorry, do you expect to move from Skogal to Beihai in 2017 and 2018 respectively?
And probably a bit in 2019 as well. That is today, we are selling these kind of products from both Imatra and Skugal. And that's over 100,000 tons.
That you would be moving from Imatra and Skugal to
Beihai?
Eventually, yes.
All right. But already by 2017, some of that 100,000?
Not all of it. It probably could stay some of it for special grades and special packaging solution would continue, but the bulk will be moved during 2017, 2018 and 2019.
Like we have said, it takes one years point to two years to qualify liquid packaging port volumes.
All right. And that's actually my final question. I mean, you said, it's one years, point two years for the Beihai ramp up starting from May 2016. Is that also when you expect to sort of reach, how can I say, sort of run rate in terms of cost and quality? Or is that even further out?
That's going to continue for a while. When we have ramped it up and got the qualified, then we start to get the profitability at the right towards the right
We have not commented yet when we expect breakeven even or full volumes from Beihai because it's
still
early stage of the ramp up. So we will come back to that subject in due course. By the way, there's sort of background noise. I don't know where it's coming from. But if you can mute if you are not talking.
So thank you. I realize it's early days, and I appreciate your answers on these questions.
We've been running it four months. Even though it's been in our agenda for many years, but it's four months now since we started it up.
Thank you.
We will now take our next question from Mikael Ervasti from DNB Markets.
Yes. Hello. Good afternoon. A couple of questions, if I may. First, on the Consumer Board side.
So on folding boxboard, you commented mainly on the demand, if I got that right, but there's plenty of these supply additions coming in quite a short term. Any comments to regarding your European capacities, Swedish and Finnish capacities? Where would you be? How would you prepare for these major additions? What will you do in this situation?
And then on the biomaterials, so you said that this 15%, the ROOC holds and it's long term, so probably not downgrading that at the CMD. So can you please give some comments about the if you have some kind of a positive pulp price expectation now for the shorter medium term? And in general, given the new major capacity additions that are coming online, what kind of pricing dynamics you see in the chemical pulp market in this short, medium and long term scenarios? Thank you.
So just to be very clear, we are a very niche player in folding boxboard. Because foodservice board, CKB and liquid, these are the main grades. Where we are strong in folding boxboard is either through the area of Performa Brilliance, which is a FPB, which is going after the SBS market with a superb quality. That's basically what we're doing. And the other area where we are quiet is in the ingueroids grades, Tamprite, which is also very specialized.
Then we are also having an SBS, which is coming out of the Stora Ensoco. So we are not really competing with this average folding boxboard quantities. We are very niched in our folding boxboard. And then we are big in liquid, CKB and full service board.
Thanks. Yes. And on pulp? Yes.
And on the pulp, so if I look on pulp prices, I think if we look sequentially now from third quarter to the fourth quarter, I think softwood pulp slightly in Europe slightly lower, hardwood and fluff stable. And in China, we think softwood pulp stable, hardwood pulp slightly higher and dissolving pulp slightly higher. That's the prices. And if you look on the demand, compare that to a year ago, I would say Europe, softwood pulp stable, hardwood pulp stable, fluff pulp slightly stronger. And then in China, softwood pulp stronger, hardwood pulp stronger, dissolving pulp stronger.
Yes. And regarding these balances going forward, because a lot of additions there as well. So how would you comment on the short to medium term?
I think there is coming additions, but it's also disappearing quite a number of pulp mills, especially in China. So it's probably being added somewhere around $1,000,000 per year of capacity. And the problem is if it's coming too much in a very short period then you get volatility.
And we expect that the pulp market continues to grow. It has been doing also already for some time a bit over 22.5% a year, which is equal to about 1,500,000 tons sort of one new pulp mill a year. So there is no change in the trend. Of course, you get a bigger volume at one quarter the market can cause short term disturbances. But in longer term, we still believe that it will be moving the right direction.
Okay. Thank you very much.
We will now take our next question from Lars Kjellberg from Credit Suisse. Your line is open. Please go ahead.
Just a follow-up. You have, of course, talked about medium term CapEx around the depreciation mark plus 100. Can you give any guidance how you think about 17 at this moment or is that too early?
We have not given any guidance for '17 yet. We will come back to that topic later. But like we have said and Karl I think mentioned earlier in the call that we are foreseeing that capital expenditure levels are coming down to a level of depreciation plus about 100,000,000 for Biological
assets.
So that would be say $550,000,000 plus €100,000,000 roughly. And about 200,000,000 €250,000,000 of that is maintenance CapEx and then remaining for development and growth projects.
And finally, in terms of working capital, you've done well there of course, right? How much further runway do you have on working capital?
I think what we have said earlier and that is still valid that we are sort of targeting about 10% of net sales as a level, which means that about €100,000,000 or so more that we could knock out.
Very good. Thank you.
There are no further questions in the queue at this time.
Okay. Thank you. It's Sula here again. I just want to remind everybody that we are hosting Capital Markets Day in London on November 17. And there we have an opportunity to discuss in more detail about the pulp markets because we have our divisional head, Juan Bueno, presenting there and also the head of Wood Products will be highlighted during the day.
And Karl and Seko will give their presentation. And in the end, we will have a breakout session. So hope to see you all there and get more insight to Stora Enso. So please, Kalle, what is yours?
Yes. Thank you. So this was another solid quarter of performance. I'm very pleased on that the underlying profitability is going from strength to strength. I'm very happy with the strengthening of the balance sheet.
I'm extremely proud of the team in China, ramping up Beihai Mill now after four months, well ahead of our plan. And I wish to see you all on the Capital Markets Day. Thank you very much, Constu Renzo.
Thank you.
Thank you.
Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.